Oil market wraps up strongest year in two decades

Published 6:30 am, Wednesday, December 31, 2003

LONDON - U.S. oil prices slipped today, but the New Year's Eve session sealed 2003 as the most expensive year for oil prices in more than 20 years -- averaging $31 a barrel.

U.S. benchmark NYMEX crude oil futures settled down 27 cents to $32.52 a barrel despite a government report showing domestic crude inventories declined unexpectedly last week. The Energy Information Administration showed a decline in crude inventories of 3.8 million barrels in the week ended Dec. 26.

International benchmark Brent crude oil in London ended the day up 43 cents to $30.15 a barrel, settling before the EIA supply data was released.

The decline in U.S. crude stocks last week was due in part to shrinking import levels and higher refinery activity as fuel suppliers buff up stocks.

Imports were down 77,000 barrels per day, compared with the previous week, to average 9.4 million bpd last week, while refiner demand for crude rose 19,000 bpd to 15.2 million bpd, the EIA report showed.

"It's troubling that crude inventories continue to draw down," said John Kilduff, senior vice president at Fimat USA. "The inverse relationship between low inventories and high prices is indisputable."

Instability in oil producing nations like Iraq, Venezuela and Nigeria helped boost oil prices on the NYMEX to an average of $30.98 a barrel in 2003, up 19 percent from the average in 2002, according to Reuters data.

The strong prices have been a headache to consumers who shelled out big bucks for gasoline, heating oil and other fuels, and have been blamed for slowing the recovery in the U.S. economy.

The price was the highest since 1982, when average benchmark oil prices came within striking distance of $32 a barrel, according to data compiled by BP in its annual statistical review.

International benchmark Brent crude oil racked up a 14 percent annual rise this year, to post the second highest yearly level in the last two decades.

Post-war sabotage at Iraqi oil facilities, and rapid demand growth in China's booming economy has kept prices strong in the second half of the year.

The OPEC oil cartel has also helped hold prices strong by reining in supply to prevent stocks building.

OPEC ministers decided early this month to leave output unchanged, saying current high prices were justified by the weakness of the dollar against major currencies, which reduced oil producers' purchasing power. The cartel will meet on Feb. 10.

The high cost of petroleum came in a year when the United States relied on a record amount of foreign crude oil for its energy needs, accounting for 62.9 percent of what it consumed, according to the Department of Energy.